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Supply and Demand Presentation copyright © 1999 by Barry Brownstein.

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Presentation on theme: "Supply and Demand Presentation copyright © 1999 by Barry Brownstein."— Presentation transcript:

1 Supply and Demand Presentation copyright © 1999 by Barry Brownstein

2 The Role of Price l Price acts as a coordinating agent –transmits information to both consumers and suppliers –coordinates so that people cooperate to promote their separate interests –provides incentives to act on the information l A voluntary exchange will not place unless both parties will benefit by it

3 I, Pencil l Not a single person knows how to make me l wood from a cedar tree, logged, shipped, manufactured l graphite from Ceylon l zinc and copper l factice is the eraser from rape seed oil in the Dutch East Indies

4 Supply and Demand Price quantity Supply demand p q

5 Tracing Through Coordination l Suppose scientists discover that eating soybeans prevents cancer, what effect would that have on the price of soybeans? corn? l What effect did the invention of polyester have on cotton prices? l If individuals start flossing three times a day, what would happen to floss prices?

6 Preventing Coordination l On toll free urban expressways, how is the scarce space rationed? l If parking spaces on a college campus are hard to come by what does that tell you about the price of a parking permit? l Rent Controls l Energy Price Ceilings l Interest Rate Ceilings


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